Cautious Farsighted Stability in Network Formation Games with Streams of Payoffs
Mariya Teteryatnikova ()
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Mariya Teteryatnikova: http://www.univie.ac.at/Wirtschaftswissenschaften
Vienna Economics Papers from University of Vienna, Department of Economics
We propose a new notion of farsighted pairwise stability for dynamic network formation which includes two notable features: consideration of intermediate payo s and cautiousness. This di ers from existing concepts which typically consider either only immediate or nal payo s, and which often require a certain amount of optimism on the part of the players in any environment without full communication and commitment. We show that for an arbitrary de nition of preferences over the process of network formation, a non-empty cautious path stable set of networks always exists, and provide a characterization of this set. Strongly ecient networks do not always belong to a cautious path stable set for a common range of preference speci cations. But if there exists a Pareto dominant network and players value payo s in a nal network most, then this Pareto dominant network is the unique prediction of the cautious path stable set. Finally, in the special case where players derive utility only from a nal network, we study the relationship between cautious path stability and a number of other farsighted concepts, including pairwise farsightedly stable set and von Neumann-Morgenstern pairwise farsightedly stable set.
JEL-codes: A14 C71 C92 D85 (search for similar items in EconPapers)
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